Brompton Group has announced:
Due to the strong performance of its class A shares, Brompton Split Banc Corp. (the “Company”) announces its intention to effect a split of its class A shares (the “Share Split”) and a concurrent private placement of preferred shares (the “Private Placement”). The Company intends to announce the final number of new class A and preferred shares expected to be issued and outstanding as a result of the Share Split and the Private Placement by way of a press release on or about Wednesday, April 12, 2017.
It is the Company’s intention that class A shareholders of record on or about Monday, April 24, 2017 will receive additional class A shares pursuant to the Share Split. The number of preferred shares offered in the Private Placement will be an amount such that following the Share Split there will be an equal number of class A and preferred shares outstanding. The Company expects that the Share Split and the Private Placement will result in an approximately 20% increase in the number of outstanding class A and preferred shares. The Share Split and the Private Placement are subject to regulatory approval.
Following the Share Split, class A shareholders will continue to receive the currently targeted monthly distribution of $0.10 per class A share. As such, existing class A shareholders are expected to be provided with an effective increase in monthly cash distributions equal to approximately 20%, in-line with the expected percentage increase in outstanding class A shares due to the Share Split. The Company provides a distribution reinvestment plan, on a commission-free basis, for class A shareholders that wish to reinvest distributions and realize the benefits of compound growth.
The preferred share equity coverage, as represented by the class A net asset value (“NAV”), is expected to be at least $13.68 following the Share Split(1). As such, following the completion of the Share Split and the Private Placement, the preferred shares are expected to have downside protection from a decline in the value of the Company’s portfolio of approximately 58%. The expected class A NAV is higher than the equity coverage available for the preferred shares: (a) at the inception of the Company, (b) at the time that the current Pfd-3 (high) rating was initially assigned, and (c) at the time the current preferred share dividend rate of $0.45 per annum was originally announced(2). DBRS has confirmed that the rating of the preferred shares will continue to be Pfd-3 (high) following the completion of the Share Split and the Private Placement.
For over 11 years, since inception in November 2005 to March 31, 2017, the class A share have delivered a 12.0% per annum total return based on NAV, outperforming the total return of the S&P/TSX Capped Financials Index by 3.5% per annum and the total return of the S&P/TSX Composite Index by 5.6% per annum(3). Since inception, class A shareholders have received cash distributions of $13.25 per class A share.
Over the last five years to March 31, 2017, the preferred shares have delivered a 4.7% per annum total return based on NAV, outperforming the total return of the S&P/TSX Preferred Share Index by 3.5% per annum with lower volatility(3).
Brompton Split Banc Corp. invests in a portfolio, on an approximately equal weight basis, in common shares of 6 Canadian Banks: Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank.
…
(1) Based on the NAV of the class A shares used to determine the Share Split ratio.
(2) Inception date: November 16, 2005; DBRS assignment of Pfd-3(high) rating: August 27, 2009 (class A NAV: $11.51); current term’s preferred share dividend rate announced September 26, 2012 (class A NAV: $11.33 as at September 24, 2012)
(3) See Standard Performance Data table below. Source: Brompton, Thomson Reuters, as at March 31, 2017
Brompton Split Banc Corp.
Performance to March 31, 2017 |
1 Yr |
3 Yrs |
5 Yrs |
10 Yrs |
Incep. (16/11/05) |
| Class A Shares (TSX:SBC) |
47.2% |
17.0% |
18.7% |
10.0% |
12.0% |
| S&P/TSX Capped Financials Index |
24.3% |
11.0% |
13.3% |
7.0% |
8.5% |
| S&P/TSX Composite Index |
18.6% |
5.8% |
7.8% |
4.7% |
6.4% |
| Preferred Shares (TSX:SBC.PR.A) |
4.6% |
4.6% |
4.7% |
5.0% |
5.1% |
| S&P/TSX Preferred Share Index |
21.9% |
0.6% |
1.2% |
n/a |
n/a |
The performance table is actually rather clever; Assiduous Readers will note that the company does not report the performance of the Whole Units against any of the indices; instead, it is the leveraged-by-definition Capital Units that are measured against the indices – which dramatically improves the results in a rising market!
Whole Unit results are reported to 2016-12-31 end-date in the 2016 Annual Report:
| |
Since
Inception(1) |
| |
1-Year |
3-Year |
5-Year |
10-Year |
| Brompton Split Banc Corp. – Class A share(2) |
49.8% |
16.3% |
20.9% |
9.4% |
11.7% |
| Brompton Split Banc Corp. – Preferred share(2) |
4.6% |
4.6% |
4.7% |
5.1% |
5.1% |
| Brompton Split Banc Corp. – unit(3) |
28.5% |
11.3% |
13.4% |
7.3% |
8.7% |
| S&P/TSX Capped Financials Index |
24.2% |
10.7% |
15.0% |
6.9% |
8.3% |
| S&P/TSX Composite Index |
21.1% |
7.1% |
8.2% |
4.7% |
6.3% |
(1) Period from November 16, 2005 (commencement of operations) to December 31, 2016.
(2) Based on the Net Asset Value per Class A share and Preferred share and assuming that distributions on the Class A shares and Preferred shares made by the Fund in the periods shown were reinvested (at Net Asset Value per Class A share and Preferred share, respectively) in additional Class A shares and Preferred shares of the Fund.
(3) Based on the Net Asset Value per unit (each unit includes one Class A share and one Preferred share) and assuming that distributions on the units made by the Fund were reinvested (at the Net Asset Value per unit) in additional units of the Fund. |
Even this comparison isn’t quite right, since the S&P/TSX Capped Financials Index includes a high weight of insurance issues and the exclusive weighting in banks is a client decision and not a discretionary management decision. One should really simply assume that the Whole Units will basically reflect the return of equally weighted banks less the MER and
The MER per unit, excluding Preferred share distributions (which were covered by the portfolio’s dividend income), was 0.99% for 2016 and 0.97% for 2015. This ratio is more representative of the ongoing efficiency of the administration of the Fund.
Update, 2017-4-11: Details:
Brompton Split Banc Corp. (the “Company”) is pleased to announce the details of the previously announced split of its class A shares (the “Share Split”) and provide an update on the concurrent private placement of preferred shares (the “Private Placement”). The Share Split and the Private Placement remain subject to regulatory approval.
The Company is pleased to announce that class A shareholders of record at the close of business on April 25, 2017 will receive 21 additional class A shares for every 100 class A shares held, pursuant to the Share Split. Following the Share Split, class A shareholders will continue to receive the currently targeted monthly distribution of $0.10 per class A share. The Company provides a distribution reinvestment plan, on a commission-free basis for class A shareholders that wish to reinvest distributions and realize the benefits of compound growth.
Pursuant to the Private Placement, 1,382,784 preferred shares were offered to investors at a price of $10.03 per preferred share. Following the Share Split there will be an equal number of class A and preferred shares outstanding. The Private Placement is scheduled to close on April 25, 2017. The preferred share equity coverage, as represented by the class A net asset value (“NAV”), is approximately $13.77 after giving effect to the Share Split(1). This represents downside protection from a decline in the value of the Company’s portfolio of approximately 58%. DBRS has confirmed that the rating of the preferred shares will continue to be Pfd-3 (high) following the completion of the Share Split and the Private Placement.
Since inception in November 2005 to March 31, 2017, the class A shares have delivered a 12.0% per annum total return based on NAV, outperforming the total return of the S&P/TSX Capped Financials Index by 3.5% per annum and the total return of the S&P/TSX Composite Index by 5.6% per annum (2). Since inception, class A shareholders have received cash distributions of $13.25 per class A share.
Over the last five years to March 31, 2017, the preferred shares have delivered a 4.7% per annum total return based on NAV, outperforming the total return of the S&P/TSX Preferred Share Index by 3.5% per annum with lower volatility(2).
Brompton Split Banc Corp. invests in a portfolio, on an approximately equal weight basis, in common shares of 6 Canadian Banks: Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank.
Calculator: FixedResetPremium Tax Effects
Tuesday, April 11th, 2017Assiduous Reader prefhound recently commented:
I had been thinking of highlighting this, but it took the comment to rouse me from my lethargy.
The interesting thing about FixedResets with very large premia is that there will be some investors who should definitely not hold them in taxable accounts due to differential tax rates. For most taxable investors a normal yield calculation will be just fine, since tax payments on larger-than-normal dividends will be offset by a recovery of taxes on the capital loss on the (presumed) call date – but this approximation is not exact and at worst can be completely wrong.
Some investors might be sitting on massive capital losses; an additional capital loss expected in the future might not be claimable immediately or, in the worst case scenario, at all. These problems were discussed in the post Tax Impact on FixedResetPremium Yields; and John Heinzl was kind enough to quote me in the Globe in his article Beware the tax trap of these tempting preferreds.
A long time ago I published a spreadsheet automating the calculation of tax effects on these issues; I’m pretty sure I noted the link in PrefLetter, but I don’t believe I ever posted about it on PrefBlog.
The calculator is an Excel Spreadsheet and is linked in the right-hand navigation panel under the heading “Calculators”.
So let’s look at four issues – the two highlighted by Prefhound and the two highest priced FixedResets:
Dividend
Tax Data is from Ernst & Young’s calculator, Ontario, 2017, taxable income of $150,000. “Dividend Rate after reset” has been input according to a constant GOC-5 yield of 1.08%, but is irrelevant to the calculation.
So to get back to Prefhound‘s questions: is this sustainable? Well not in the medium- to long-term, obviously, because one must assume that these high-spread, high-price issues are going to be called at the first opportunity. And one must also anticipate the price dropping towards 25.00 with every dividend paid. But the yields are probably sustainable – there are some investors who view issues of this type as substitutes for GICs, given the high call probability, and they’re just fine with 2%+ yields. Could these issues go over $28? Well, I won’t say anything’s impossible, but I consider it unlikely. A lot of people really don’t like paying such a high premium.
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